Covid-19 Catches up with Seaborne Coal in Asia

Maritime Activity Reports, Inc.

By Clyde RussellApril 28, 2020

Image by Yaniv - AdobeStock

The coronavirus pandemic has finally caught up with seaborne thermal coal in Asia, as soft demand in major importers India and China sends prices to multi-year lows and dents the polluting fuel's relative outperformance against other energy.

The price of low-energy coal from Indonesia, the world's top exporter of thermal coal, has dropped to the lowest since assessments were started by commodity price reporting agency Argus in 2008, while higher-quality Australian supplies have slumped to a four-year low.

Indonesian coal with an energy value of 4,200 kilocalories per kilogram (kcal/kg), a popular grade with both Indian and Chinese utilities, fell to $26.03 a tonne in the week ended April 26, according to Argus. The grade has plunged 29% from its 2020 high of $36.37 a tonne in the week to Feb. 16.

The weekly index for cargoes of higher-rank thermal coal from Australia's Newcastle Port, which are mainly destined for Japan, South Korea and China, dropped to $52.79 a tonne in the week to April 26, the lowest since June 2016, and down 24% from this year's peak of $69.59 in mid-January.

While these declines are fairly dramatic, they are still nowhere near as bad as the plunge in crude oil, with Brent futures down 72% from their January peak this year to the close of $19.99 a barrel on Monday.

Spot Asian LNG <LNG-AS> has fared just as badly, with the price plummeting 71.3% from its pre-winter peak of $6.80 per million British thermal units in October to just $1.95 in the week to April 24, an all-time low.

While thermal coal doesn't compete with crude oil for power generation in most of Asia, there is some overlap in countries such as Japan and South Korea, which can switch fuels according to the relative economics.

The slide in seaborne coal prices will help maintain the fuel's competitive edge against LNG, but merely being cheaper is unlikely to be enough to keep prices from falling further.

The problem for thermal coal in Asia is that the two biggest buyers also have significant domestic industries, and both China and India have shown a willingness to protect local mines over imports in the past.

INDIA LOCKDOWN

India is particularly worrying for Indonesian exporters, with the government actively discouraging imports at present, as the country's economy takes a massive hit from a lockdown implemented to try and contain the spread of the new coronavirus.

The lockdown started in March and is due to expire next week, although reports have suggested the government is considering extending the restrictions.

Already, India's coal imports appear to be weakening, with vessel-tracking and port data compiled by Refinitiv pointing to about 16.5 million tonnes arriving in April, down from 17.6 million in March and 20.3 million in April last year.

Looking at the breakdown, imports from top supplier Indonesia are expected to drop to 5.2 million tonnes in April from 6.5 million in March and 10.4 million in April 2019.

Another concern in India is the relatively high level of stockpiles, with inventories at mines and power plants around 125 million tonnes in the first two weeks of the fiscal year started this month, up from about 120 million at the end of March, according to data from industry analyst Charles Worringham of Indiapowerreivew.com.

China's seaborne imports are holding up for now, with 25.1 million tonnes forecast by Refinitiv to arrive in April, up from 23.5 million in March and 21.2 million in April last year.

But there are question marks over how long China will continue to allow imports to remain high, with some traders reporting port restrictions and official encouragement to buy domestic supplies in order to support local prices.

Ultimately the current issue for seaborne thermal coal is that the normal mechanism of lower prices serving to spur demand may not work, given the impact of the coronavirus on Asian economies and the preference for domestic supplies in India and China.